Cloudflare, Inc. (NYSE: $NET) is an American tech firm that operates a global network of servers that helps to boost the security, performance, and reliability of the global internet. It maintains and operates one of the largest content delivery networks (CDNs) in the world. Additionally, it provides cloud cybersecurity, DDoS protection, and ICANN-accredited domain registration.
On Thursday, February 8, 2024, Cloudflare released its fourth quarter and full-year fiscal 2023 results to a positive market reception during aftermarket trading.
Cloudflare’s Fourth Quarter Result
The company reported a 32% increase in revenue to $362.5 million for the fourth quarter, above analyst forecast of $353.1 million, in line with the third quarter growth. Cloudflare reported a net loss of $27.9 million, or $0.80, a considerable decline from the $45.9 million reported last year, or $0.14 per share.
Its non-GAAP net income in the quarter was $53.5 million, or $0.15 per share, above expectations of $0.12, a huge increase from the $21.6 million non-GAAP net income, or $0.06 per share reported in fiscal 2022.
Full-year net revenue was $1.3 billion, a 33% increase from last year. For the full year, the company had a GAAP loss of $183.9 million, or $0.55 per share, a huge decline from the $193.4 million, or $0.59 per share reported for fiscal 2022. Cloudflare’s non-GAAP net income for FY23 was $169.7 million, or $0.49 per share, an increase from the $44.4 million, or $0.13 per share reported the previous year.
Cloudflare’s gross margins for the fourth quarter and the full year also improved. Its fourth-quarter gross margin was 77% compared to the 75.3% gross margin reported in the previous year. Non-GAAP gross margin in Q4 was 78.9% compared to 77.4% last year. Full-year gross margin was 76.3% compared to 76.1% the previous year, while non-GAAP gross margin was 78.3% compared to 78.2% the previous year.
Cloudflare’s Balance Sheet
At the end of Q423, Cloudflare had $85.4 million in net cash flow from operations, compared to $78.1 million last year. Its free cash flow at the end of the quarter was $50.7 million, compared to $33.7 million in Q4 fiscal 2022.
For the full year, Cloudflare reported $254.4 million in net cash flow from operations, compared to $123.6 million last year. Meanwhile, its full-year free cash flow was $119.5 million, a considerable change from a negative free cash flow of $39.8 million in fiscal 2022.
2024 Outlook
For the first quarter, Cloudflare expects revenue of $372.5-$37.5 million and a non-GAAP income from operations of $34-$35 million. The company expects a non-GAAP net income per share of $0.13.
For the full year, Cloudflare forecasts revenue of $1.648-$1.652 billion and non-GAAP net income from operations of $154-$158 million. It expects a non-GAAP net income per share of $0.58-$0.49.
The full-year earnings guidance was higher than analysts’ estimates. However, the mid-point of the full-year revenue guidance was slightly below analysts’ estimates. LSEG analysts predict $0.56 in adjusted EPS and $1.652 billion in revenue.
Cloudflare Announces New Deals
During a conference call on the Q4 results, Cloudflare co-founder and CEO Matthew Prince said that the company signed one of its biggest new deals during the quarter with the highest annual contract value in its history.
On a conference call with analysts, the CEO mentioned they had been awarded a three-year contract with a ceiling value of $33 million by the Department of Commerce. He also announced a slew of other deals with government agencies and major companies.
The CEO also revealed that the company was working on supplying software developers with AI-capable GPUs. Thus far, they have installed the GPUs in 120 cities as of the end of 2023, exceeding their target of 100.
By the end of this year, the company plans to have “inference to GPUs deployed in nearly every city that makes up Cloudflare’s global network and within milliseconds of nearly every device connected to the Internet worldwide,” according to Prince.
Additionally, Cloudflare plans to grow its revenue by selling security services to government agencies, and companies. Prince noted that cyberattacks had ramped up dramatically since Hamas launched its attack in October 2023.
Leadership Changes
Cloudflare announced on Thursday, February 8, 2024, that Mark Anderson had been appointed as president of Cloudflare, replacing Marc Boroditsky. Commenting on the appointment, CEO Matthew Prince said Mark had been part of the growth of Cloudflare for over four years.
Prince added that “bringing him on to drive our go-to-market efforts was an exceptional opportunity we simply could not pass up. I’m personally excited to work closely with him, and we are thrilled to welcome him to the team as we continue to build a world-class sales organization.”
Cloudflare Stock (NET) Performance
During aftermarket trading on Thursday, February 8, 2024, NET stock rose by over 26% at one point. As of 8:35 AM, before markets opened, NET stock was up 24.57% at $112.50 per share. During regular trading on February 8, Cloudflare stock had gained 8.35% at the close of trading to $90.31.
Over the past 12 months, Cloudflare stock has risen by 55.25% as of the February 8 closing price. Year-to-date, the stock is up 13.81%, while the S&P 500 Index has gained 5.35% YTD.
Cloudflare Stock Forecast
As of the close of trading on February 8, 2024, NET stock had a consensus moderate buy rating. Analysts project a broad range for the stock, with a high of $120 and a low of $73. Their average target for NET stock is $90.71, a 0.44% upside based on the last closing price. However, most analysts are likely to revise their targets upwards after the impressive Q4 results.
Is NET Stock a Buy?
Cloudflare stock posted market-beating results in its fourth quarter results. Additionally, its balance sheet has improved. The recently signed deals means that revenue will likely grow for 2024 and beyond. Additionally, the company has announced its plan to enter the AI space, which is projected to be worth $305.90 billion at the end of 2024.
Based on its recent results and full-year guidance, NET stock is a buy.
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